Wednesday, November 20, 2013

Is Income Inequality that Serious a Problem?

OK, I have been trying to fix this post a couple times now. I am just not doing justice to the problem. Do you have a helpful suggestion? Income equality is destroying our national vitality- one person, one family, one community at a time. Yet that is still bloodless and abstract prose. If you have a personal reflection in your own life, feel free to add your thoughts or suggest a link to someone more articulate. This issue is so important.

Extreme income inequality is dangerous ground for America. A robust economy is based on a broad middle class making a good income where they can afford to purchase, not only to cover their needs but their desires for entertainment and comfort and personal style. Small businesses in each of their communities cater to this middle class selling goods and services and hiring staff when they need to- to meed demand.

The 1% buys a lot of stuff but it cannot keep communities all across America robust because they are only 1% of Americans. And they can't spend billions on their own desires. Many millions maybe, but not billions...

Make sure you get an accurate perspective on how serious our income inequality problem is. Most Americans do not understand the extent of it. But right here we are going to attempt to gain a perspective on how serious a problem this is.

Now, make sure you see the conversation on the causes of this huge inequality. There are all kinds of reasons for income inequality- structural, political, philosophical... but the situation is not sustainable as it is. We all need to grasp the seriousness of the predicament and get engaged and elect politicians who understand these issues- who are ready to think deeply and act decisively to move towards a better balance of wealth and income in America.

A vibrant economy depends on a growing demand for goods and services. Make sure you understand the basic business cycle. A thriving economy requires a broad array of people spending money to make it work. A vibrant economy cannot work when enclaves have absurd levels of income, and vast patches of the rest of America have shrinking incomes, and a diminishing demand for goods and services. This creates instability and heightens risk of economic collapse.

Continuing inequality is not good for America. It is corrosive to the American dream.  When the middle class is strapped for money and opportunity to make money- they cannot afford to spend and less spending caused businesses to fold- employees to get laid off and even less money in the hands of people to spend. I am talking small business here- and, specifically, small businesses right here in North Texas. Have you noticed how many restaurants have gone under in the last few years. I have always had a tender spot for Chinese all-you-can-eat. All of the ones I enjoyed are now closed.

We really do not understand the unintended consequences of a burgeoning income inequality and the shrinking of opportunity in America for middle and aspiring middle class. People hungry for new opportunity for wealth and income- participated in a home equity bubble that promised new wealth as home prices skyrocketed. They took advantage of low interest adjustable rate mortgages to extend their ability to pursue the American dream- and then the bubble burst. ARMs came due- interests rates went up and people could not sell because the bottom had fallen out of the market. People quit spending, demand fell for goods and services, people lost jobs, they lost their homes and the Wall Street bubble- built on toxic assets, blew up.

Ok, my point here is not to write a history, but to draw a circle around the point of how much of all this happening was a result of unintended or unanticipated consequences. People reacting to a diminishing ability to find jobs, make a living and maintain their standard of living as wages dropped and opportunities dried up, were ready to grasp at a bubble because it promised income- a way to make money but in fact the bubble bursts and leaves them much worse off. And the problem which originated in a steady capture of wealth and income in America becomes a faster trickle up to the 1%. 

The net affect of the bust was big banks were bailed out, but people were not. This was a huge shift in wealth as capital moved back into these depressed markets and picked up homes for dimes on the dollar waiting for recovery. They net affect was and will result in even more concentration of wealth in America as the housing market returns to a new normal.

The point here is the trends causing the shrinkage of the middle class, fueled the housing bubble and the housing bubble exacerbated the income inequality crisis and even as the housing market returns to a new normal- good or bad- depending on how much capital you have- how much income you have- which side of the income inequality gap you ar on- all these events have just made income inequality worse- making the economy more unstable and put our fellow citizens at more risk with less income, and fewer visible opportunities  to make things better.

So loss of income, more time spend unemployed or underemployed leave cash strained Americans with cars falling into disrepair- homes waiting for structural repairs- leaving people with more incuberances standing in the way of them striking out for new horizons- ready to take a risk. And now rampant income inequality is impacting the spirit of America- hindering the paths to upward mobility for Americans. Once this was a great strength for America. Not again until we solve our dilemma with income inequality. 

Inequality and economic hardship over a period of time harms people's spirits.. American success is build on risk takers. Ready to quit a job and strike out with  a new idea. Ready to pack the bags and move to a robust area of the country.. Well, this phenomenon in America has greatly slowed. Exceptions are in areas where fracking is bringing in new sources of oil, or where industry is moving towards less expensive labor. These paths do not mean robust income growth for Americas even as these endeavors improves return on capital. Fracking and new oil and gas energy is commodity development in a boom and bust growth cycle. This is not long term growth that adds to the long term foundation of American success. Industries moving to take advantage of lower wages is, in aggregate, a loss of income for Americans.

There are hotspots of entrepreneurial activity around high tech in rarified parts of the country, but while these generate great wealth, the number of people involved are small and the result of the new tools are even more human productivity- which means more wealth, and fewer people needed to create that wealth. Understanding technology and robotics is critical to understanding how we got here and why we need to change some serious attitudes about income and work in this nation.  as much as it once did.  This factor is exacerbated by income inequality even as the loss of mobility causes great problems with income inequality.

People are frustrated and angry. Opportunists are happy to take advantage by instilling fear and inciting rage.  How many Americans understand what is happening to this economy? How many have time to stop and study what is going on- what with two or 3 low paying jobs to try to make ends meet? What will racing around and trying to keep the head above water? 

Americans are long suffering, and full of optimism and hope, but they do have eyes and ears, they do watch televisions, and pay attention to social media, and they do not have infinite patience. There is a lot of anger and frustration in America. Anger can be displaced and misdirected. There is a whole myth industry that obfuscates truth and distracts from the real structural issues. We have to understand and deal with our real challenges or our situation will only become more difficult to solve.

American's patience can snap. It has in the past. It can happen again. We do not even realize the unintended consequences of such inequality. Our government and economy work on trust and common interest. People cooperate and things work. Grocery trucks show up in the early morning and our shelves are full. Our smooth running society runs on cooperation. We must realize that we are playing with fire, to screw with people's lives, to not provide opportunity for young people.

High levels of inequality is more in the nature of a banana republic. I hope that name still means something. A wealthy elite in charge and a large and restive populous dependent on the graces of the wealthy elite is not a good situation for growth or stability in society. While it might feel really good to be sitting at the top- when you start a game of king of the mountain, you can get tossed off. History tells us what happens when wealth gets really cozy at the top- when it loses empathy or understanding of those at the bottom. Americans are a warlike people. We are happy doing our own thing, but when we rise up in wrath, we are tenacious, creative and have been very successful warriors when needed.

So I hope everyone gets a pretty good idea that a continuing trend of wealth collection at the top in America is not a healthy thing. I know I missed many reasons why this is so bad. Feel free to add your thoughts. And also tell me why so many people are ambivalent to this situation now? Like an earthquake- civil unrest is calm until it isn't. We really need to do something serious about income inequality. Lets discuss what we can do here.  So what are you going to do? What would you like to add?

Saturday, November 16, 2013

This One Simple Concept Debunks all the Deficit Crisis Handwringing

One simple tale proves all the debt hawks are full of BS, but first, lets have a meeting of the minds as to what a deficit hawk is. The deficit hawk is the one heard constant badgering about the big debt clock... we are up to 17 trillion plus in debt now... We cannot afford to spend money. We must cut SNAP to kids and seniors... We have to cut government spending.... We are creating this huge debt which will have to be paid by our children... We are burdening future generations with our debts now...

I write about this huge myth- misunderstanding or willful plotting- a lot because it is such an important issue as we come to grips with real problems and real issues in this country. I will add in a variety of links and topics on this subject- but let me put this whole concept of a government deficit as a huge and growing problem to rest in one simple concept.

How else do we reach out and create the full economy even as our technology puts people out of work... why- if in any one year we spend money to fully fully utilize all the products and services that are able to be provided by America's businesses- why would we consider that a debt that we owe?

In fact, if money is not spent we are not fully utilizing all the value our economy was able to create in a given year. Where can this money come from? It can come from consumers and businesses- but with a struggling economy and tens of millions out of work or underemployed how are consumers going to create enough demand and why would business invest more when they know demand is down because the economy is down.

So why should not the government invest - increase the "deficit". What to invest in can be a national dialog... wouldn't that be a pleasant change in the wind coming from Congress.

Imagine government spending creating a demand for products and services much closer to full employment and full utilization of our human talent? It is just filling out the budget to cover lost production.. If we do not do this, there are investments lost forever because the time when they could have been made are lost. This is the true loss for our future generations. The cleaner water and air we could have invested in... a more robust health system... green spaces...

And, the Federal Government does not have to borrow to spend. Here is an interesting link describing how the Federal Budget does work under Fiat money. Stop and move beyond your present thinking about the Federal deficit. This mythologizing about the dangers of national debt are debilitating to growing the economy and putting people to work. We need government investment. We have real problems to solve. Solutions that start with investing money in the path to solutions.

What would you like to add here?

Remember Stagflation? What did we Learn from it?

Listen- can you hear it? There is this din- you can hear voices babbling about potential problems with inflation. You can hear voices saying  we cannot invest in America, why you  will cause inflation. And that really bad kind of inflation called stagflation.

Even while we have over 11 million Americans out of work in this country and millions more underemployed, and millions who are paid low, low wages, people are still worrying about potential problems with inflation.

How can there be inflation when demand for goods and services is off by trillions of dollars and millions people are ready able and anxious to go to work to help companies across America produce goods and services. No, there are still worry warts and special interests  that say investing government money would create inflation, and particularly stagflation.

We have experienced stagflation in America. It took place in  the 1970s and it is really important to understand  the right lessons from this period or we are liable to take the wrong lesson  from the experience. It is easy for ideologies to turn history on its head and misshape events to fit their preconceived notions.

Stagflation is a  great example.

I could stick this widely expressed idea around the neck of several authors- but let's quote Bruce Bartlett  ...
Although Keynes’s theory was most appropriate to the Great Depression, his followers did indeed believe in its general applicability and the Keynesian medicine was overapplied and misapplied during much of the postwar era, leading to stagflation in the 1970s. Conservatives like Professor Buchanan were right about that.

You should never discuss the causes of stagflation without acknowledging the biggest factor in the origins of stagflation which was the oil embargo of 1973.

In October of 1973, the Egyptians came up with a plan to attack Israel across the Suez canal into Sinai. Egypt had lost the Sinai in the 1967 war and wanted it back.  They plotted with Syria to attack Israel during the holy days of Yom Kippur thinking the could catch Israel and its citizen army unready.

Egypt bought great water pumps from Germany and used them to wash down access routes into the high sand berms on the Sinai side. This discombobulated Israeli defense strategy- Israeli strategists  figured they had more time to spot and deal with attacks here...  and things were nip and tuck for a few days.

The Syrians had also opened a second front in the Golan heights- but after the 3rd day, the tide of battle turned.  You can look up in the wikipedia on the Yom Kipper war for more info . The October war  the last war between Israel and Egypt to the present day with both sides learning valuable lessons from this experience.

The United States played a key role in coming to the aid of the Israelis- this was a different era of Isreali American relations- this was also deep in the Cold war where the Arabs and Israelis played out in the struggle between the USA and the Soviet bloc,

The Arabs were not happy with US involvement supporting Israel.  Here is how the wikipedia says it.
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC (consisting of the Arab members of OPEC, plus Egypt, Syria and Tunisia) proclaimed an oil embargo. OAPEC decided to retaliate against the United States, announcing an oil embargo.[2] It lasted until March 1974.[3]

Ok, so what is the big deal about an oil boycott?

At that time, we had no strategic oil reserve in this country. That came later. Our entire economy was built around cheap oil. However, by 1970 our reliance on foreign oil- and predominantly Saudi oil was- devastating.

diagram of oil prices before during and after the 1973 oil embargo.
The huge jump in the price of oil impacted the entire economy and created a cost push inflationary cycle with reverberations that became what was called stagflation. The price of oil had a huge impact on the economy running up to the price highs and a great bit to do with the recovery later as the price fell.
- image swiped from the Prairie Research institute in Illinois.

Oil impacted the entire economic supply chain in America. Imagine your next visit to the pump if oil was suddenly over $300 a barrel or $500. This is much scarier than zombies.

There was also a shortage of oil and gasoline not just much higher prices. I was in California in 1973 when gas lines formed. We drove all night to get out of California and back home in Skagit Valley, WA. We picked up some gas at an open station in Oregon along Interstate 5 about 3:45 in the morning.

OK, this was a classic case of cost push inflation. Price of oil resources goes up and every level of the economy has to adjust prices upward. Prices of services go up because it makes products and transportation must more expensive. Workers demand higher wages. Even as prices are going up the economy is tanking because of the disruption. Like ripples on a pond, transient effects of the oil crisis reverberated through the economy and took years to settle out.

This is the biggest cause of stagflation and economic disruption in the 1970's. It was not Keynesian fiscal policy. The oil crisis caused  a stagnant economy with fast rising inflation. There were some political carrying on which had an impact. Richard Nixon- a republican even tried wage and price controls for a while. But the big culprit was the oil crisis.

Stagflation finally came to an end when the price of oil stabilized and actually came down as other producers came to the front with the big jump in prices and OPEC lost most of its power to dictate prices. Saudi Arabia became a great partner in pricing. They understood to sell more oil the advanced economies needed energy stability.

This is such an important lesson to understand because all of our present worry about inflation is misplaced. Government investment is not a big creator of inflation.

Government spending would have to create such demand for goods and services as to reemploy millions of Americans- actually get the economy humming along and then continue to overspend until demand exceeded our economic ability to produce the goods and services to meet demand. We could cut back on government investment, and deal with potential inflation well before this might happen.

A real threat of inflation and stagflation more closely relates to a shortage of energy sources in the world. We have outgrown our supply of fossil fuels. We are discussing inflation issues here, not climate change which is another national security issue- but there is a critical shortage of fossil fuels and energy coming.

World oil and gas production has peaked in the world, even as we are bombarded with happy news about the oil boom in America do to fracking. This new production will help taper off the descent from the World peak production numbers when they occur.  This is a national security issue that looms as a potential disruption which can bring on another even more serious bout of stagflation in the future. This is a national security issue which needs to be funded by government investment. Government investment can help us plan a stable future with plenty of energy or we can continue the path towards crisis energy management.

Fresh clean water is becoming another precious resource even as we have always had all we needed in America. This is a national security issue. We certainly know this is a big deal in Texas. We are hearing more and more about it all the time. Now even the well watered areas of the country are overtaxing their natural water resources.

So why do politicians spend so much time ranting about non crises like potential inflation- when we have so many real issues to deal with- using the tool of Federal funds?

Does anybody else feel nervous about trusting Big Oil to solve our energy problems when they are making higher profits as oil prices raise? As they acquire more power because of the fealty of legislators who pocket the money and buy into the idea that Big Oil is the solution to our energy need? Who thinks that "drill baby drill"  is a long-term solution?

Have you stopped to think of the natural conflict of interest between our American interests and the interests of big Oil?  They are not the same. They are in conflict. So who else feels nervous that so many legislators are in fealty to these big companies.

OK, I have veered totally off subject here. We will discuss understanding the conflicts between our national interests and the special interests of Big Oil separately....

So I  leave you  with one last reminder of our main point here. We have to understand our real challenges and not get bogged down in or distracted by mistaken lessons from history about the fears of inflation and stagflation.

We must understand the real potential for inflation and stagflation. We have issues with natural resource shortages that can create new and even more serious stagflation in the economy. We need to learn the right lessons from history.  We cannot see government investment as a mistaken cause of stagflation but must look beyond the ideology and address real and known issues while we have the time and resources to plan and think with wisdom.

Any questions or any thoughts, speak right up...

Wednesday, November 6, 2013

Someone Wants to Discourage You from Voting

Hey, wake up! Powerful forces in Texas do not want you to vote. Instead, they want to keep you lulled to sleep but also add some extra points of  discouragement sto that you will not go through the effort to register that you will feel intimidated that you do not have the right ID to vote to keep you sitting at home during the next election.

It is a small tyranny wrapped with a thin veneer around the idea that they want to prevent voter fraud. The real problem is they have power, they want to keep power, but the forces of good and fairness are growing. The powers of tyranny had to figure out how to put a finger on the scales of justice. They have created new voter ID laws to discourage "all those other people" in Texas from voting.

They don’t want to give you a hint that you have power in Texas. They don't want you to realize the majority of Texans think like you. If you don't get up and act, well you will never know the power you share with other thoughtful Texans.

We have the lowest turn out of any state in the Union in Texas because people have just given up and turned over the reins of government to loud and rude and mean people.

This is the time to get it back. And you need to register. And you need to try and vote. And every Texan that is burdened down with regulation needs to make a fuss, and stand up for their rights as an American. We must defend our rights as Americans to vote- for our children, for all children. Denying the people a vote is a path to tyranny and we must struggle against tyranny at every step.

Come join us, Claim your right to be involved in the future of Texas and the future of America. May the best ideas win in debate and may everyone of you be involved in the process of looking at the issues, and making up your mind the right policies going forward, and the right people to lead us and exercise your right to vote for them. This is the legacy you leave to future generations. Lets all claim it for ourselves.

The next critical election is in November 2014 when Wendy Davis gives us a real alternative to a new direction in Texas, and when we will be again electing all of our representatives to Congress. We will also get to weigh in on a senate seat. We will continue this discussion as we move forward to a new Texas- not necessarily Blue- not all Red- but instead a shade of thoughtful.

We want politicians who have empathy for what is happening to Texans, and who are ready to  watch out for our interests.We need to elect women and men who are ready to deal  with issues faced by Texans through a lens of what is real not through ideological eyes.

People are already hard at work registering new voters, getting registered voters engaged that their vote counts for something again. Take a deep breath. Imagine the fresh clean air of a new political climate in Texas. Lets get it done.